Due to activity on April 19th, 2010, John Paulson's hedge fund firm Paulson & Co has filed a 13G with the SEC regarding shares of American Capital (ACAS). John Paulson's fund has disclosed a 15.5% ownership stake in American Capital (ACAS) with 43,725,000 shares. The vast majority of shares are held in the firm's Recovery Fund and Advantage Plus Fund. Regular readers of Market Folly will already be aware of this position because we previously reported that Paulson would be acquiring a new ACAS stake. This is not new information, but it does confirm what we already knew.
Paulson added shares of ACAS via a $295 milion stock offering from the company where he paid $5.06 per share. ACAS now is trading and Paulson & Co appears to be the largest investor in American Capital. ACAS will use this much needed capital infusion to help restructure debt.
In other news relating to Paulson & Co, you of course know that they've been put in the spotlight as of late due to the accusations surrounding Goldman Sachs and the subprime mortgage trade. John Paulson set out to clear the air in his recent letter to investors. In terms of his hedge fund's recent execution, you can also view Paulson & Co's recent performance numbers here.
Taken from Google Finance, American Capital is "an equity firm and a global asset manager. The Company invests in private equity, private debt, private real estate investments, early and late-stage technology investments, special situation investments, alternative asset funds managed by the Company and structured finance investments."
For more on John Paulson's hedge fund, head to Paulson & Co's portfolio.
Sunday, May 2, 2010
Hedge Fund Paulson & Co Files 13G on American Capital (ACAS)
Key Level to Watch in the Stock Market
Adam over at MarketClub just recently put out his latest technical analysis video on the Dow Jones. In it, he identifies a key level to watch in the market as we've started to see a few distribution days. While he is by no means saying the market will crater from here, he is definitely cautious. Drawing a fibonacci retracement from the highs in 2008 to the lows in 2009, he starts to outline a clear area to watch out for. The Dow Jones recently traded around 11,254, right at the 61.8% retracement level, an area Adam feels the market is bound to find as resistance. Thus far, the market has failed at that level and declined to the present 11,000 region. You can hear his latest analysis in the video below:
Simply put, he feels it's time to protect some capital by reducing some long exposure as there's nothing wrong with taking some profits. Head to MarketClub's latest look at the stock market to hear his thoughts.
This technical look coincides with a few other heedful stances as we noted hedge funds were selling equities and market strategist Jeff Saut recommended caution. Not to mention, we also saw legendary investor and former manager of the Quantum Fund Jim Rogers start some short positions and we also started to see emotional reactions often found in the investor psychology cycle as the market booms from peak to trough and back again. Overall, it seems many are becoming more cautious on the stock market in the near-term and the technicals seem to agree according to Adam.
Thursday, April 29, 2010
What We're Reading ~ 4/30/10
Hedge fund manager Bill Ackman's battle against the bond insurers: Confidence Game [Christine Richard]
Anthony Scaramucci of Skybridge Capital talks about the hedge fund industry [Pragmatic Capitalist]
The thing about selling stocks is that you have to buy something else [Reformed Broker]
Q&A with Herb Greenberg [The Kirk Report]
Moore Capital's Louis Bacon is the richest hedge fund manager in the UK [FINalternatives]
Mike Darda says the Fed is on hold for the next few quarters. What's this mean for all the hedgies with curve steepener trades on? [Pragmatic Capitalist]
Comparing Simon Property Group & General Growth Properties to mergers of past [ValuePlays]
The Kelly formula and event driven investing [Distressed Debt Investing]
Is the market being driven by technicals or fundamentals? [Big Picture]
Why you shouldn't worry about Green Mountain Coffee Roaster's patent expiration [Barbarian Capital]
Chanticleer's first quarter investor letter [MyInvestingNotebook]
Thoughts from David Winters of the Wintergreen fund [Business Week]
How Steven Cohen averaged 30% returns [Washington Post]
Fund of hedge funds: 1 & 10 and never again? [Economist]
20 signs that could mark a market top [TheStreet]
Hedge fund veteran Philippe Jabre sees value in Europe [Reuters]
From hedgie to hedges, a look at Michael Steinhardt [WSJ]
Does Prudential face a roadblock in its takeover? [BBC]
Investor Psychology Illustrated: Where Are We in the Cycle?
It's funny how cycles work. Exactly one year ago we posted up a chart illustrating investor psychology. As we now look back, April of 2009 marked a time when the market had just bottomed and was in the nascent stage of a comeback. Today, we find ourselves in a completely converse situation. Rather than watch the market decline and decimate, we're now faced with a seemingly never ending market rally that some would label an anomaly of an ascension. Ahh the market cycle, don't you just love it? Investors have certainly experienced a wide array of emotions over the past few years. Behavioral finance has long been a compelling topic and if you're interested in learning more, we defer to hedge fund Blue Ridge Capital's recommended reading list.
One year ago, for whatever reason, we were compelled to post up a chart illustrating investor psychology. Today, one year later, we felt compelled again. Below you'll find the 17 stages of investor psychology ranging from rage to disbelief to euphoria. Here is how investors feel during the peak-to-trough market cycle:
(click to enlarge)As you can see, there are 19 stages in the cycle. By all accounts, it would seem that we are currently somewhere between points 15 and 19 on the chart. Are we past the "what the hell???" stage yet? Some would argue that we passed that point at around 1,100 on the S&P 500. Some would also argue that we are at point 17 in the cycle, the "more crazies who are going to get taken to the cleaners" stage. Who knows.
While it's uncertain where exactly in the cycle we are, the point is that we're still in a cycle. Given that we posted this chart up exactly one year ago, we found it fitting to remind everyone of the various levels of mania an investor can experience. We do know this though: many have turned cautious. While he admits market timing is not his forte, legendary investor Jim Rogers recently started some short positions. Additionally, over the past few weeks, hedge funds have drastically reduced long exposure as the smart money's been selling equities. Lastly, we covered how market strategist Jeff Saut summoned the old market adage, "sell in May and go away" and then said don't wait 'til then to do so. Many will deem this as rational thinking given the run the market's had. At the same time, this all reminds us of stage 18 in the cycle where everyone thinks the correction is coming but then the market actually heads higher. In this liquidity driven environment, it certainly wouldn't be the first time.
Couple the above chart with this additional one from Prieur du Plessis, and you've covered the full spectrum of investor psychology:
(click to enlarge)Soros Fund Management Discloses Westport Innovations Position
In a 13G filed with the SEC due to activity on April 26th, 2010, George Soros' hedge fund firm Soros Fund Management has disclosed a new position. We see that they now own a 5.26% ownership stake in Westport Innovations (WPRT) with 2,069,901 shares. This is a brand new position for them as they did not own any shares back on December 31st, 2009 when we took a look at Soros' equity portfolio. While they own common shares now, it could be possible that they exercised warrants as we've seen other investors in WPRT have recently done so. That's purely speculation on our part though
Other notable recent portfolio activity out of Soros' hedge fund includes buying NovaGold Resources shares (NG). Soros of course is famous for his stellar returns with his Quantum Fund and is remembered for 'breaking the Bank of England'. While many are often intrigued by the latest maneuvers from George Soros, keep in mind that his hedge fund firm is mainly run by his sons and other distinguished portfolio managers. In fact, we just recently saw that Neil Pegrum has joined Soros Fund Management from Cazenove Capital. George is involved very little in the day-to-day of the global macro hedge fund. For insight from Soros himself, head to his interview at Hong Kong University.
Taken from Google Finance, Westport Innovations is "involved in the research and development of environmental technologies, including high-pressure direct injection combustion technology that allows diesel engines to operate on cleaner burning gaseous fuels, such as natural gas without sacrificing performance or fuel economy."
You can view the rest of George Soros' investments here.
Wednesday, April 28, 2010
The Smart Money's Selling Equities: Hedge Funds Continue to Reduce Exposure
Bank of America Merrill Lynch is out with the latest iteration of their hedge fund monitor report and we get a glimpse at the latest exposure levels. If you like to follow the smart money, then you should highly consider selling equities because that's exactly what hedge funds are doing. Last week we posted that hedge funds had below average net long exposure and we see this trend continues. Long/short equity funds are now around 25% net long, which is definitely below their historical average of 35-40% net long. Of their long positions overall, hedgies favor small cap and low quality 'junk' stocks. Last week we also touched on how there is a divergence between l/s funds and market neutral funds. This divergence continues as market neutral funds are still net long equities (but they did reduce some beta exposure).
We also see that according to CFTC data, many hedgies have been adding to shorts in S&P futures. Whether they are simply selling longs to lock in some profit or making a market timing call, one thing is clear: hedge funds are definitely cautious in this market. We also got confirmation of this trend from David Einhorn's hedge fund Greenlight Capital. In their latest investor letter, Greenlight discloses that they were 100% long and 70% short, leaving them 30% net long for the first quarter. This is right along the lines of what we've seen across industry-wide data sets.
Turning now to other significant asset class moves from hedgies, we see that they were adding to longs in crude oil and pressing deep shorts in natural gas. Additionally, hedge funds continue to pound the euro short. In interest rates, we learn that for the third consecutive week, hedge funds have very crowded shorts in 10 and 30 year treasuries as they short the long end of the curve. Curve steepeners continue to be hedge fund land's favorite drug.
Lastly, we also get a performance update from BofA regarding their hedge fund generals list. This is a basket comprised of stocks widely owned by hedge funds. It is up 13% year-to-date for 2010 and for 2009, the HF generals index was up 69%. You can compare these figures against individual hedge funds in our first quarter performance numbers post.
Embedded below is Bank of America Merrill Lynch's latest trend report on hedge fund exposure levels:
You can download a .pdf here.
So, the trend remains much of the same across hedge fund land as of late. Hedgies are selling equities, shorting the long end of the yield curve, shorting the euro, and longing crude oil. You can view BofA's previous hedge fund trend report here and make sure to also check out their hedge fund generals list to see what stocks hedge funds love most.
Bill Ackman Thinks General Growth Properties Can Double Over the Next Several Years "If Done Correctly"
Pershing Square Capital Management founder and hedge fund manager Bill Ackman recently appeared on CNBC in an extended segment. In his interview, he talked about the Goldman Sachs fraud case, the benefits of short selling, and most notably, some of his investments. They segment also noted that Bill Ackman is the subject of Christine Richard's new book, Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff. The book focuses on Ackman's campaign against bond insurer MBIA (MBI) and we will be reading & reviewing the book here shortly.
We're going to do things a bit backwards here and start with Ackman's closing thoughts from the interview because they deal with his investments. Pershing Square's founder updates us on his stakes in General Growth Properties (GGP) and Target (TGT). Readers will know that we've previously disclosed Pershing's economic exposure to GGP as they bet on the emerging-from-bankruptcy REIT player. Ackman notes that Pershing invested $50-60 million GGP equity when shares were seemingly on life support and that investment is now worth over $1 billion and was the "best investment (he's) ever made." He also hopes for the mall operator to emerge from bankruptcy, "hopefully come September or sooner." Lastly, Ackman thinks shares of GGP could double over the next several years if everything is "done correctly." Here's the video:
Regarding his Target position, Ackman notes that Pershing still owns over $1 billion of stock and it is one of their largest investments. Email readers please note that you'll need to come to the site in order to watch all these videos. Here's the video where Ackman discusses his investments:
In the next video, Ackman turns to financial reform and he is in favor of regulatory implementations. Here's his thoughts:
Turning to the last video interview, we get some commentary from Christine Richard, the author of the new book on Ackman, Confidence Game. Additionally, Ackman discusses the Goldman Sachs case:
Overall, an intriguing set of talking points as Ackman was a guest at CNBC for an extended period of time. While some readers will crave more investment specific conversation, he still chatted about relevant and important topics. While his General Growth Properties investment is the best he's ever made, he was also correct and successful in his past wager against MBIA. You can read about how his hedge fund manager mind works in the new book Confidence Game. We'll be reading it and reviewing it shortly.
For more of our coverage on hedge fund Pershing Square, we see that they recently sold their Sears Canada stake, and we detailed their newly disclosed Yum Brands position (YUM). Lastly, to learn more about Ackman and his hedge fund, head to our past profile of Pershing Square.
Phil Falcone's Harbinger Capital Still Owns Mercer International (MERC)
Philip Falcone's hedge fund firm Harbinger Capital Partners recently filed an amended 13G with the SEC due to activity on April 23rd, 2010. In it, we learn that they own a 6.11% stake in Mercer International (MERC) with 2,228,194 shares. This is the exact same amount of shares they held on December 31st, 2009 when we took a look at Harbinger's portfolio. So, there has been no change in their position. While not as exciting as a 'buy' or 'sell', we just wanted to update you on their 'hold' status since they filed a disclosure.
While Harbinger still owns shares of MERC, we just recently learned that David Einhorn's hedge fund Greenlight Capital recently sold their Mercer stake after holding it for many years so we see a little difference in opinion here. In their letter to investors, Greenlight Capital mentioned that they first purchased their stake in 1997 and sold most of their common shares in 2008. They continued to hold their debt position and Einhorn's fund just sold this in the first quarter. Greenlight said they were, "happy to move on."
Taken from Google Finance, Mercer International is "a producer of market northern bleached softwood kraft (NBSK), pulp in the world. The Company operates in the pulp business. It is a kraft pulp producer, and producer of pulp for resale, known as market pulp, in Germany."
If you've been following all of our coverage regarding Harbinger Capital Partners, you know it's been a bit of a zoo in terms of SEC filings. Falcone's fund recently sold New York Times shares (NYT), started a stake in Palm (PALM) and the hedge fund also interestingly planned a 4G wireless network. We'll continue to keep you updated on all their disclosed activity.
Eric Mindich's Eton Park Acquires Sable Mining (SBLM) Shares
We've just learned that Eric Mindich's hedge fund firm Eton Park Capital have acquired 42,000,000 shares of Sable Mining (LON:SBLM) due to a placing held on April 16th, 2010. Eton Park's stake is representative of a 4.53% stake in the company. Keep in mind that another prominent hedge fund, Phil Falcone's Harbinger Capital, also recently boosted their stake in Sable Mining. As we detailed previously, Harbinger owned a 23.35% stake in SBLM as of March 23rd, 2010.
In terms of other activity out of Mindich's hedge fund, we recently detailed a portfolio update on Eton Park. For more of our coverage on Mindich, we recommend checking out some of his thoughts from a hedge fund panel regarding whether or not there is alpha in asset allocation. Lastly, we've also covered how Eton Park has expanded their UK positions recently as well. Their addition of a Sable Mining stake of course bolsters these actions even further.
Sable Mining Africa Ltd is small company listed on the AIM market in London. It was re-named in November 2009 and used to be called BioEnergy Africa. Sable changed in 2009 with a move away from bio-ethanol related assets into mining related energy assets. Sable Mining is now focused on the acquisition or investment in early stage coal and uranium with a particular emphasis on Namibia, Botswana, Zimbabwe and Zambia.
Sable Mining intends to be an active investor in an attempt to add value both operationally and strategically to the businesses it acquires or invests in. The company’s objective is to own entire or majority interests in suitable businesses or assets rather than holding minority investments. To facilitate the new strategy, the company undertook a fundraising via a placing of new ordinary shares in December 2009. It is likely that Harbinger bought shares in the placement at a price below the quoted market share price. Sable’s Chairman is ex-England cricketer and slow left arm bowler, Phil Edmonds.
Head here for a recent portfolio update on Eton Park to see what else they've been up to.
Tuesday, April 27, 2010
Steven Cohen's SAC Capital Raises Inspire Pharmaceuticals (ISPH) Stake
Steven Cohen's hedge fund firm SAC Capital recently filed a 13G with the SEC regarding shares of Inspire Pharmaceuticals (ISPH). According to the filing, SAC Capital now shows a 4.9% ownership stake in Inspire Pharma with 4,033,829 shares. This is a massive increase in their position as back on December 31st, 2009 they owned 3,932 shares of ISPH. Keep in mind though that SAC Capital is a trading oriented firm and as such moves in and out of positions much more swiftly than the hedgies we normally track here at Market Folly.
We've covered other recent activity out of Cohen's hedge fund such as their updated stake in The Talbots (TLB) as well as their newly disclosed position in InterMune (ITMN) and lastly their stake in Psychiatric Solutions (PSYS).
SAC Capital finished 2009 up over 28% as noted in our post on hedge fund 2009 performance numbers. Famed manager Stevie Cohen of course was recently featured in Forbes' billionaire list as well. Again, please remember that SAC is a trading oriented firm and typically has much shorter holding periods than the other hedge funds we track.
Taken from Google Finance, Inspire Pharmaceuticals is "a biopharmaceutical company focused on researching, developing and commercializing prescription pharmaceutical products for ophthalmic and pulmonary diseases."
For more on Steven Cohen, check out all our coverage on hedge fund SAC Capital.
Roberto Mignone's Bridger Management Starts 2 New Positions
Roberto Mignone's hedge fund Bridger Management recently filed 13G's on The Princeton Review (REVU) and Medifast (MED). Due to activity on April 15th, Bridger Management has disclosed a 6.3% ownership stake in The Princeton Review (REVU) with 3,000,000 shares. Secondly, due to activity on April 16th, Roberto Mignone's hedge fund has disclosed a 5.1% ownership stake in Medifast (MED) with 787,144 shares. This position is interesting because back in March we revealed that Steven Cohen's hedge fund SAC Capital started a new position in MED. So, we now have two prominent hedge funds invested in this company.
The Princeton Review and Medifast are both brand new positions for Mignone's hedge fund as they did not own shares on December 31st when we detailed Bridger Management's portfolio. Somewhere in the last three and a half months they've assembled these stakes. In terms of other recent portfolio activity, we made note a few weeks ago of Bridger's new stake in Centene (CNC) as well.
Bridger is a $2.8 billion hedge fund focused on long/short & event driven strategies and often focus on healthcare related names. Prior to founding Bridger, Mignone co-founded Blue Ridge Capital with John Griffin in 1996. For more insight from Bridger, head to Mignone's thoughts at a previous hedge fund panel.
Taken from Google Finance, The Princeton Review is "a provider of classroom-based, print and online education products and services targeting the high school and post-secondary markets."
Medifast is "engaged in the production, distribution, and sale of weight management and disease management products and other consumable health and diet products. The product lines include weight and disease management, meal replacement, and vitamins. "
You can view the rest of Bridger Management's portfolio here.
Monday, April 26, 2010
David Einhorn Dumps Boston Scientific (BSX): Greenlight Capital's Investor Letter
David Einhorn recently sent out hedge fund Greenlight Capital's first quarter investor letter. In it, we learn that the fund has exited their position in Boston Scientific (BSX). Readers will remember that Einhorn had just started this position and mentioned it in his fourth quarter investor letter. They purchased shares of BSX for $8.42 and sold them for $7.57. So, Greenlight has cut their losses quickly on this one and moved on to the next investment.
The Greenlight team writes, "We had bought BSX based on the view that new management had been brought in to execute a significant turnaround plan, which after careful study, it would detail contemporaneously with fourth quarter results. Instead, management decided not to provide any meaningful targets, raised new operating issues, and seemed to say that turning the company around would be harder than they thought and would take a long time. We re-assessed our thesis and forecasts, and limited our loss by selling the position."
Overall, Greenlight notes that they didn't have much portfolio turnover to report. Greenlight's Offshore fund was down 1.3% for the year as of the end of March as noted in our hedge fund performances post. However, keep in mind that Greenlight has also returned 22% annualized since inception.
Einhorn's five largest positions as of the first quarter were:
1. CIT Group (CIT)
2. Gold
3. Lanxess (LXSG)
4. Pfizer (PFE)
5. Vodafone Group (VOD)
Remember that if you want a peak inside Greenlight's investment research process, we recommend reading David Einhorn's book: Fooling Some of the People All of the Time. In regards to his recent VOD position, we recently examined Einhorn's Vodafone thesis for those of you seeking their investment rationale. Keep in mind also that their gold position is in physical gold, as they were one of the first major hedge funds to use this rather than proxies for gold like exchange traded funds.
Possibly the most notable thing to take away from Greenlight's investor letter are their exposure levels. Excluding credit derivatives, gold and foreign currencies, Greenlight Capital had an average exposure to equities and fixed income of 100% long and 70% short. This 30% net long level coincides with what we've seen lately from various hedge fund research outlets that have indicated hedgies currently have below average net long exposure. Hedge funds have definitely become more cautious as of late.
Embedded below is Greenlight Capital's first quarter investor letter:
You can directly download a .pdf here.
In the letter we also learned that Greenlight closed out various longs in BJ Services (BJS), McDermott (MDR), LiveNation (LYV), MEMC Electronics (WFR), and Mercer (MERC). Additionally, we saw that they covered shorts in Abercrombie & Fitch (ANF), Federal Realty Investment Trust (FDR), and HSBC (HBC). While Einhorn and company exited Live Nation, we've made note recently that Jay Petschek's hedge fund Corsair Capital started a new position in LYV and Stephen Mandel's Lone Pine Capital started a stake as well, so it's intriguing to see the divergence of opinion here.
That about wraps things up on Greenlight's end. To learn how to invest like Einhorn, we highly recommend reading his book: Fooling Some of the People All of the Time. And for more insight, you can also read David Einhorn's previous investor letter here.
Bill Ackman's Pershing Square Sells Sears Canada Stake to Eddie Lampert's Sears Holdings
Bill Ackman's hedge fund Pershing Square has sold its 17.3% stake in Sears Canada (TSE:SCC) for around $560 million to Sears Holding (Nasdaq:SHLD), the company owned by Eddie Lampert and his hedge fund RBS Partners. Upon completion of the transaction, Sears Holdings will own around 90% of Sears Canada. This is not the first time that Lampert has tried to buy Ackman's stake in Sears Canada either. Back in 2006, Lampert attempted to purchase shares at around $16 per share and Ackman declined, deeming the offer too low. This time around, Ackman accepted an offer of CAD 30 per share (Canadian Dollars). With this, it seems as though Sears Holdings will possibly look to buy out the remaining shares of Sears Canada.
For more of our coverage on Ackman's hedge fund, we recently covered their newly disclosed position in Yum Brands (YUM) and their economic exposure to General Growth Properties (GGP). Turning to Eddie Lampert's recent activity, we noted that he recently bought AutoNation shares (AN).
Taken from Google Finance, Sears Holdings is "the parent company of Kmart Holding Corporation (Kmart) and Sears, Roebuck and Co. (Sears). The Company is broadline retailer with 2,235 full-line and 1,284 specialty retail stores in the United States operating through Kmart and Sears, and 402 full-line and specialty retail stores in Canada operating through Sears Canada Inc. (Sears Canada)."
You can view Bill Ackman's portfolio here and you can view Eddie Lampert's portfolio here.
Hedge Fund Farallon Capital Still Shows Energy Partners (EPL) Stake
Thomas Steyer's hedge fund firm Farallon Capital recently filed a 13G with the SEC regarding Energy Partners Ltd (EPL). As of April 15th, 2010 Farallon Capital shows a 7.1% ownership stake in the company with 2,859,337 shares. This is the exact same amount of shares they owned back on December 31st, 2009 when we covered Farallon's portfolio so there is no adjustment to their position. While nothing major has happened with their stake, we do learn that they at least still hold their position and so we thought we'd pass that information along for those interested.
The hedge fund filed the amended 13G to adjust the managing members of their firm listed as beneficial owners of the stock. As we've detailed in the past, it's extremely likely that Farallon received their equity position in EPL from a debt-to-equity conversion. Thomas Steyer founded Farallon in 1986 and today it is a multi-billion dollar hedge fund that invests in equities, private investments, debt, and real estate. Typically, they focus on risk arbitrage strategies. Taken from Google Finance, Energy Partners is "an independent oil and natural gas exploration and production company."
Hedge Fund Lansdowne Increase Short Position in Prudential (LON:PRU) Again
While we realize this is the third such update in a short span of time, it's rare you see public disclosures of short positions by hedge funds so we figured we'd provide as much detail as possible when we get the chance. Late last week we disclosed that UK based hedge fund Lansdowne Partners was short Prudential plc (LON:PRU - traded in London. It's not the American insurer that goes by the same ticker symbol). Then, we saw that they increased their short position from -0.32% of the company's shares to -0.42%.
We now see that Steven Heinz and Paul Ruddock's hedge fund firm have increased their short position in PRU a second time. Lansdowne Partners are now short -0.84% of the company's stock, essentially doubling their short position from the last time we detailed their position. This most recent disclosure represents their position as of April 22nd, 2010.
We've heard from contacts in the UK that shares of PRU on the London exchange are now hard to borrow with brokers wanting 3% interest if/when they locate the shares to short. So, Lansdowne have definitely created a stir here and there are obviously a few people piggybacking this trade. Keep in mind that this position is apparently a hedge to Lansdowne's long positions in UK banks. Last week we disclosed that Ruddock's hedge fund was also long Lloyds Banking Group (LON:LLOY, NYSE:LYG).
Performance wise, Lansdowne's UK Equity fund was up 8.28% through the end of March as we mentioned in our hedge fund performance numbers post from the first quarter. Additionally, in the past we've seen that their flagship fund has returned 19.37% annualized since 2001. When we took a look at Lansdowne's portfolio late last year, we also saw that they favored large cap plays in developed countries.
Friday, April 23, 2010
Hedge Fund Lansdowne Partners Increases Prudential Short Position
Steven Heinz and Paul Ruddock's prominent UK based hedge fund Lansdowne Partners have increased their short position in Prudential Plc (LON:PRU). American readers please keep in mind that this is not the Prudential that trades on the NYSE, it is a different company. Earlier this week, we initially reported that Lansdowne was short Prudential to the tune of -0.32% of Prudential's stock. Well, we just recently learned that Lansdowne has increased their short stake to -0.42% of the company's shares. On Wednesday when we disclosed that Ruddock's hedge fund was also long Lloyds Banking Group (LLOY), we learned that their short of PRU is effectively a hedge to their long positions in UK banks. So, it seems that they've boosted their hedge.
Taken from Google Finance, Prudential is "a financial services company. The Company has operations in the United States, Asia, Europe and Latin America. Through its subsidiaries, it offers products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services."
You can view some of Lansdowne's other portfolio holdings here.
Jay Petschek & Hedge Fund Corsair Capital Bullish on Expedia (EXPE) & W.R. Berkley (WRB) ~ Investor Letter
Today we're detailing the first quarter investor letter out of Jay Petschek (pictured) and Steven Major's hedge fund Corsair Capital Management. For the first quarter, they were up 6.7% net of fees. So, why should you care what Corsair has to say? Well, how about the fact that they've returned 15.5% annualized since inception in 1991 and have seen a total return of 1509%, absolutely demolishing the S&P 500 over the same timeframe. In January, we covered their previous investor letter and below we'll detail their latest thoughts.
First off, we see that their five largest positions are in Global Specialty Metals (GSM), Innophos Holdings (IPHS), Kapstone Paper & Packaging (KS), Lyondell bank debt, and Maiden Holdings (MHLD). In the first quarter of 2010, they also started some brand new positions including Expedia (EXPE), W.R. Berkley (WRB) and Live Nation (LYV). Stephen Mandel's hedge fund Lone Pine also started a LYV position recently.
Corsair's stake in EXPE is interesting as we've previously seen many hedge funds hold shares of Expedia's rival Priceline.com (PCLN) ~ it was a favorite stock among many Tiger Cub hedge funds. We even saw one fund add shares of Orbitz (OWW), another competitor in the online travel space. However, the only fund we've seen with a sizable position in Expedia is Roberto Mignone's Bridger Management. It's intriguing that more funds are starting to look into this space and this name in particular. Corsair's thesis in Expedia revolves around flat to rising ADRs and continued strong transaction growth. The company has a 10% free cash flow yield and they highlight a good point that EXPE definitely holds an asset in TripAdvisor. Online travel sites are gaining a hedge fund following certainly.
Additionally, we see that Capitalsource (CSE) was Corsair's largest winner in the first quarter. We make note of this because many prominent hedge funds hold a stake in CSE, including Seth Klarman's Baupost Group and Mohnish Pabrai as well. Lastly, Petscheck's hedge fund is bullish on shares of W.R. Berkley (WRB) as they think the property & casualty insurance company is only trading at an 'average' price, despite being one of the better names out there. Corsair notes that, "the P&C sector is trading at its cheapest valuation in at least a decade because we are at the weak point in the cycle." They've written an entire page summarizing their bullish stance on WRB at the end of their letter so we will defer to that for their thoughts.
Embedded below is the first quarter letter from Jay Petscheck's hedge fund Corsair Capital Management:
You can directly download a .pdf here.
We found their update an insightful read just like their previous letter as well so hopefully you enjoyed it. We'll continue to track Corsair as they are an ideal long/short equity fund to follow. We're starting to receive first quarter commentaries from hedge funds, so make sure to catch up on all the other hedge fund letters we've started to post.
Falcone's Hedge Fund Harbinger Capital Sells New York Times (NYT) Shares
Phil Falcone's hedge fund Harbinger Capital Partners just filed a Form 4 and an amended 13D with the SEC regarding shares of The New York Times Co (NYT). In the disclosures, we see that Harbinger sold 1,500,000 shares of NYT at a price of $12.30 on April 20th. The next day, they sold 1,750,000 more shares of NYT at a price of $12.55. After these transactions, Harbinger still owns 13,636,799 shares of The New York Times. So while they definitely still own a sizable stake, this means they sold 19.2% of their position. According to the 13D filing, Falcone's hedge fund is left with a 9.43% ownership stake in the company. This is the second time in recent weeks that they've sold NYT shares and we detailed their previous sales.
Falcone's hedge fund focuses on event driven, bankruptcy, and value plays as they seek "alpha-generating ideas that are uncorrelated to investment cycles." Falcone has been quite busy as of late as we recently saw Harbinger start a stake in Palm (PALM) as the company has positioned itself to be sold. Harbinger also revealed plans for a 4G wireless network in a move we've never seen a hedge fund make before. The hedge fund was up 1.77% for the year at the end of March as noted in our first quarter hedge fund performance numbers post.
Taken from Google Finance, The New York Times Co is "a diversified media company that includes newspapers, Internet businesses, investments in paper mills and other investments. The Company is organized in two segments: News Media Group and the About Group."
To see the rest of Falcone's equity investments, head to Harbinger's portfolio.
Whitney Tilson Explains His Short Position in Lululemon Athletica (LULU)
Hedge fund manager Whitney Tilson of T2 Partners recently was interviewed by Forbes and we wanted to quickly highlight his thoughts. In the past we've covered Tilson's short positions and we highlight them because, let's face it, not many funds talk about their short books openly. Short positions are almost treated as holy grail and are often kept guarded closely to the vest. So, we like to highlight any rationale whenever we can. We've of course covered Tilson numerous times on the site and you can hear his investment ideas at the upcoming Value Investing Congress as well.
While shorts in general have not performed well due to the ever-rising equity markets of today, you'll recall that Tilson has found success with his short position in Palm (PALM). We've covered some of T2's short positions here as well. We'll have to see if he's found another winner in shares of Lululemon Athletica (LULU).
From his Forbes interview, Tilson says of his LULU short:
"Generally speaking, many dicey companies have run up a lot over the past year and our short book has hurt us a lot because everything's been running (but we've still done very well because our long book is bigger than our short book). It is both a very attractive but also very tough environment for shorting. By that I mean that there are a lot of overpriced stocks out there.
However, they've been overpriced for months and they keep going up because there's so much liquidity sloshing around. Also there's a lot of momentum in some of these stocks that's running them up. A good example is a company that makes yoga apparel called Lululemon Athletica. They have a nice little niche and they're growing rapidly--their apparel is hot and margins are very high. But it's trading at an extreme valuation and it looks like a fad to me--It's yoga clothing! We think the fad could pass and are quite certain that the valuation is extreme.
The stock is today at right now as I speak at $43.66. It bottomed in March of '09 below $5. So the stock's gone from there to almost $45 and has a $3.1 billion market cap. Its trailing 12 month earnings through January 2010 were 82 cents a share, so it's trading at close to 54 times earnings. And even if you believe analysts' estimates for their year ending January 2011, it's trading at 41 times."
It's always good to get a manager's perspective on their short positions. In addition to his Palm and Lululemon shorts, we also know that Tilson is still short Moody's (MCO), the ratings agency that has somewhat come under fire as of late. For more insight from Tilson, keep in mind that you can hear his investment ideas at the upcoming Value Investing Congress in California next month.
Taken from Google Finance, Lululemon Athletica is "a designer and retailer of technical athletic apparel primarily in North America. Its yoga-inspired apparel is marketed under the lululemon athletica brand name. The Company offers a line of apparel and accessories, including fitness pants, shorts, tops and jackets designed for athletic pursuits, such as yoga, running and general fitness."
In the past we've also posted up some of hedge fund T2 Partners' other short positions here and then previously here as well.
What We're Reading ~ 4/23/10
A good summary of AnthonyGallea's book Contrarian Investing [Dasan]
A self-sustaining recovery? Not yet [Pragmatic Capitalist]
The short case for First Solar (FSLR) [Bronte Capital]
Louis Bacon's Moore Capital warns of eurozone breakdown [Marketwatch]
Major contrarian call on natural gas prices [Reformed Broker]
A blog worth reading [Kiplinger's]
Dan Loeb & Third Point's annual report for their listed fund [Investegate]
How mortgage CDOs are made, a great animation [Wall Street Journal]
Hedge fund assets approach all-time highs [FT]
A video interview with Gotham Capital's Joel Greenblatt [Forbes]
Inside the Goldman trade [NY Observer]
Charles also has a bunch of great investment reads linked up [TheKirkReport]
